Middle East Conflict Drives Up Jet Fuel Prices, Potentially Raising Airfares

The ongoing conflict in the Middle East has significantly disrupted global oil supplies, leading to a sharp increase in jet fuel prices. This development is placing financial pressure on airlines as the busy summer travel season approaches.

Industry experts indicate that it's not a matter of if airfares will rise, but when and by how much. Long-haul international routes, which consume more fuel, are expected to be most affected.

Several airlines outside the United States have already announced fare increases or fuel surcharges to offset rising costs. In the U.S., United Airlines CEO Scott Kirby recently stated that airfare increases will "probably start quick" as higher fuel costs impact the industry.

The conflict has constrained oil exports, prompting major producers like Kuwait, Saudi Arabia, and Iraq to scale back output due to shipping obstacles. Iran's attacks on commercial ships and oil infrastructure in the Persian Gulf have effectively halted traffic through the Strait of Hormuz, a passage that carries about one-fifth of the world's oil supply.

As a result, crude oil prices have become volatile, causing retail gasoline prices to rise sharply. The average jet fuel price in the U.S. reached $3.99 per gallon on Friday, up from $2.50 before the conflict began two weeks ago, according to the Argus U.S. Jet Fuel Index.

Some airlines employ fuel hedging strategies to lock in prices and mitigate sudden spikes. However, not all carriers hedge, and those that do are typically protected for only a portion of their fuel needs. Prolonged price surges may lead more airlines to raise fares.

Airspace closures have necessitated rerouting flights around parts of the Middle East, resulting in longer routes, additional fuel consumption, and higher operating costs.

Travelers may experience the impact through increased fuel surcharges or higher base fares, as U.S. carriers typically incorporate fuel costs into ticket prices rather than as separate fees. Airlines might also adjust charges for premium add-ons, such as seat upgrades and checked bags, to offset higher operating costs.

If elevated fuel prices persist, airlines may adjust schedules or reduce certain routes. The exact extent of ticket price increases will depend on factors like route, airline, and travel demand.

Fuel typically accounts for 20% to 25% of an airline's operating costs, making it the second-largest expense after labor. A sharp rise in fuel prices can significantly impact airlines' budgets.

So far, fare increases and fuel surcharges have been more common among airlines in the Asia-Pacific region. For example, Cathay Pacific announced it would increase its fuel surcharge starting Wednesday, stating that the price of jet fuel has approximately doubled since March amid the latest developments in the Middle East.

Other airlines implementing price increases or new surcharges include:

• Air France-KLM, which indicated that roundtrip economy fares on long-haul flights could rise by about 50 euros (approximately $57).

• Air India, which introduced fuel surcharges on certain routes, with increases of up to $50 for tickets to Europe, North America, and Australia after March 18.

• IndiGo, India's largest airline, which added fuel charges on domestic and international flights effective March 14, ranging from Rs 425 ($4.60) for domestic flights to Rs 2,300 for flights to Europe.

• Hong Kong Airlines, which increased fuel surcharges across several routes as of Thursday.

• FlySafair in South Africa, which announced a temporary fuel surcharge.

Experts advise travelers planning summer trips to book earlier to secure lower prices before airlines adjust rates further. Flexible booking options, monitoring fares at nearby airports, and using frequent flyer miles or credit card points can also help mitigate rising costs.